Bowhead Specialty Holdings Inc.

Hello and welcome to Bowhead Specialty's fourth quarter 2025 earnings call. After the prepared remarks, we will hold a question and answer session. For those in the Q&A room, please use the raise hand function at the bottom of your Zoom screen to join the question queue. You can do this at any time and your questions will be addressed during the Q&A session. Also, as a reminder, this conference is being recorded. If you have any objections, please disconnect at this time. With that, I'd like to turn the call over to Shirley Yap, Head of Investor Relations. Shirley, you may begin.

Thanks, Mariana. Good morning and welcome to Bowhead's fourth quarter 2025 earnings conference call. I'm Shirley Yap, Bowhead's chief accounting officer and head of investor relations. Joining me today are Stephen Sills, our chief executive officer, Brad Mulcahy, our chief financial officer, and Derek Broaddus, our head of casualty. As we introduced last quarter, we'll be inviting an additional member of our management team on our earnings calls to share insights from the area of expertise. Today, we are joined by Derek Braudis, who heads our casualty team. Thanks, Mariana. Good morning, and welcome to Bowhead's fourth quarter 2025 earnings conference call. Thanks, Marianna. Good morning and welcome to Bowhead's fourth quarter 2025 earnings conference call. I'm Shirley Yap, Bowhead's chief accounting officer and head of investor relations. Joining me today are Stephen Sills, our chief executive officer, Brad Mulcahy, our chief financial officer, and Derek Broaddus, our head of casualty.

As periods was primarily driven by our reduction and increased our seating commission.

Therefore, we believe our combined ratio will be in the mid to high 90s for the full year and return on equity to be in the mid teens. Turning to our investment portfolio, we expect to extend our duration slightly from three to four years. This change is not because we're predicting interest rates to decrease, but to closer match the duration of our investments to the duration of our liabilities. And lastly, from a capital perspective, In November, we issued $150 million of 7.75% senior unsecured notes that are scheduled to mature on December 1, 2030. We expect the proceeds to be sufficient for our year-end 2026 regulatory capital requirements, but we'll continue to assess throughout the year. With that, we'll turn the call over for questions.

If you would like to ask a question, we ask you please use the raise hand function at the bottom of your Zoom screen. Once called upon, please unmute your audio to ask your question. As a reminder, we are allowing analysts one question and a relevant follow-up. We will pause for a moment to allow questioners to enter the queue.

If that's cool. Yeah. Fab. Are you ready?

Okay. With that, I would like to turn the call over to Shirley Yap, head of investor relations. Shirley, you may begin.

Thanks, Mariana. Good morning and welcome to Bowhead's fourth quarter 2025 earnings conference call. I'm Shirley Yap, Bowhead's chief accounting officer and head of investor relations. Joining me today are Stephen Sills, our chief executive. Thanks, Mariana. Good morning and welcome to Bowhead's fourth quarter 2025 earnings conference call. I'm Shirley Yap, Bowhead's chief accounting officer and head of investor relations. Joining me today are Stephen Sills, our chief...

Hello and welcome to Bowhead Specialty's fourth quarter 2025 earnings call. After the prepared remarks, we will hold a question and answer session. For those in the Q&A room, please use the raise hand function at the bottom of your Zoom screen to join the question queue. You can do this at any time and your question will be addressed during the Q&A session. As a reminder, this conference is being recorded. If you have any questions, please disconnect at this time. With that, I would like to turn the call over to Shirley Yap, Head of Investor Relations. Shirley, you may begin.

Thanks, Mariana. Good morning and welcome to Bowhead's fourth quarter 2025 earnings conference call. I'm Shirley Yap, Bowhead's Chief Accounting Officer and Head of Investor Relations. Joining me today are Stephen Sills, our Chief Executive Officer, Brad Mulcahy, our Chief Financial Officer, and Derek Broaddus, our Head of Casualty. As we introduced last quarter, we'll be inviting an additional member of our management team on our earnings calls to share insights from the area of expertise. Today we are joined by Derek Broaddus who heads our casualty team, Bowhead's largest division. Derek will walk us through Bowhead's casualty portfolio and offer his perspective on the casualty markets in which we operate. Turning to our performance, earlier this morning we released our financial results for the fourth quarter of 2025. You can find our earnings release in the investor relations section of our website and later this evening you will also be able to find our Form 10-K on our website. I'd like to remind everyone that this call contains forward looking statements within the meaning of the private securities litigation reform act of 1995. Investors should not place undue reliance on any forward looking statement. These statements are made only as of the date of this call and are based on management's current expectations and beliefs. Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. You should review the risks and uncertainties fully described in our SEC filings. We expressly disclaim any duty to update any forward-looking statement except as required by law. Additionally, we will be referencing certain non-GAAP financial measures on this call. Reconciliations of these non-GAAP financial measures to the respective most directly comparable GAAP measure can be found in the earnings release reissued this morning and in the investor relations section of our website. With that, it's my pleasure to turn the call over to Stephen Sills.

Thank you, Shirley. Good morning, everyone, and thank you for taking the time to join us today. I'm very proud of Bowhead's accomplishments in 2025. We delivered disciplined premium growth of 24% for the year, surpassing our original expectation of 20%. We also had a meaningful improvement in our expense ratio, coming in below 30% for the year, and better than the low 30s range we expected at the start of 2025. Together, these achievements resulted in an over 30% growth in our adjusted net income for the year, an adjusted return on equity of 13.6%, and diluted adjusted earnings per share of $1.65. I'll begin with gross written premiums. BowHeads GWP increased 21% in the fourth quarter to $224 million and 24% for the full year to approximately $863 million. We achieved disciplined premium growth from each of our divisions in the quarter and for the full year, with casualty driving the increase. Given our emphasis on underwriting discipline and prioritizing profitability over volume, we're pleased to have delivered stronger than expected growth in the fourth quarter. In casualty, GWP increased approximately 26% in the fourth quarter to $133 million and 28% for the full year to $551 million. The growth in both periods was primarily driven by our excess casualty portfolio. Our fourth quarter growth came in stronger than expected, driven by construction project risks that were quoted earlier in the year but delayed due to macroeconomic factors we discussed in previous earnings calls. The green lighting of these projects added just under 30% to our fourth quarter casualty premiums. While we like the profitability of the construction project business and expect new construction projects to continue, the non-recurring nature of this business may create lumpiness in our GWP. In our professional liability division, GWP increased approximately 4% in the fourth quarter to $48 million and 9% for the full year to $174 million. Our fourth quarter growth was primarily driven by our cyber liability portfolio, where we continue to target small and midsize accounts facilitated by our digital underwriting capabilities. Our full year growth was driven by commercial public DNO and miscellaneous errors and omissions. In our healthcare liability division, GWP increased approximately 8% in the fourth quarter to $34 million and 14% for the full year to $116 million. Our growth in both periods was driven by our healthcare management liability and senior care portfolios. Additionally, our hospital's portfolio, which represents the largest portion of the division's full year premiums at almost 30%, continued to grow while we reduced our total limits deployed for baleen gwp increased 47 percent from q3 to over 9.1 million and we're proud of the fact that for the full year baleen generated over 21 million dollars the momentum we saw in the fourth quarter gives us confidence in baleen's continued expansion and its anticipated contribution to our broader digital initiative. With a strong year behind us, I'm even more excited about Bowhead's future. As we've said before, Bowhead was built to deliver sustainable and profitable growth across market cycles, and we do that by delivering our products through two complementary underwriting models. Our first model is our craft underwriting model, the foundation of our company. It is led by experienced underwriters who specialize in complex, non-standard, high severity risks and who delivered tailored solutions for our brokers and insurers. Our second model is our digital underwriting model, which represents the technology enabled low touch approach to our specialty flow business. This model began with the launch of baleen in the second half of 2024, focusing on small, harder to place risks with restricted coverage. We then expanded this technology to handle the high volume of small and mid-sized submissions that were within our appetite, but historically not cost effective for our craft underwriters to get to. a capability we call Express. Express automates the underwriting process that used to be repetitive and time consuming, allowing our underwriters to make disciplined underwriting decisions within minutes. We first applied Express to our small and middle market cyber liability products in Q2, then broadened it to an E&O product in the second half of 2025. Well, our craft model delivered over 97% of our GWP in 2025. We've been able to achieve our sub 30 expense ratio even before the digital model is fully scaled. For example, in 2025, headcount grew just under 19% from 249 people to 296, while GWP grew 24%. And in the fourth quarter alone, headcount increased less than 3%, while GWP grew 21%. Together, Bayleen and Express form our digital underwriting model, designed for speed, consistency, and disciplined decision-making, all while preserving the underwriting culture that defines BowHead. We look forward to introducing you to our head of digital on a future earnings call so you can hear directly from the team leader driving this effort. Turning to our premium outlook for 2026, we continue to expect profitable premium growth of around 20% for the full year. While we anticipate the growth coming from each of our divisions, we believe the main source of this growth will be driven by our casualty division, followed by the growth stemming from our digital capabilities. With that, I'll turn the call over to Derek, who's been in the casualty business over 30 years and won the Insurers 2025 E&S Underwriter of the Year Award. Derek, over to you.

Thank you for the introduction, Stephen, and good morning, everybody. Bowhead wrote its first casualty policy at the end of 2020. So we never wrote large limits for low premiums in the pre 2020 years. We were born in an up rate, relatively low limit environment, which still largely exists today. When Bowhead began, the commercial casualty market had just emerged from a 15 year plus soft market where pricing was suppressed and limits were abundant, all while social inflation was brewing in the background. We think that the payback equation between limit and price in that time was way off. And because of the tail, we still don't think the bill has totally come due for the industry's pre-2020 prior year adverse development. As a 30-year veteran of the industry, I'm happy to say that it has never been a better time to be a casualty underwriter. Our trading partners ask us what differentiates Bowhead's approach to casualty. Well, many of you have heard the insurance business is a people business. The best way to build a successful underwriting organization is to have the best underwriters in the business. Bowhead attracts top talent with our underwriting first culture, focusing on profitability over volume. Underwriters are also attracted to our straightforward distribution model, supporting and partnering with our trading partners. We are overwhelmingly surplus lines. We also are not distracted by fixing a book of business. We are laser focused on managing and building our current portfolio. It's worth mentioning here that while we remain a predominantly remote organization, we are constantly on video talking about risks with what we call round tables. Our underwriters are accessible anytime, anywhere. It is an advantage to be able to hire talent no matter where they sit. Another meaningful benefit to this structure is that it is easy to include less senior underwriters from around the country in complicated underwriting meetings that might have been near impossible in a traditional office setting. No one is above being questioned or challenged at Bowhead. In fact, it's encouraged. Additionally, Bowhead Casualty deliberately avoids classes that are well-known hotspots. Two examples are for hire commercial auto, we don't write risks that are in the business of hauling people or things for others, and we have limited exposure to large national accounts. Our focus remains on profitable classes where we have expertise and experience. We manage limits carefully in today's market. Our average excess limit deployed is just over 5 million. rather than the $25 million blocks that were common pre-2020. Large excess towers that once required only a few markets to complete now require many markets at better pricing. We also avoid low price per million, high excess placements that require the deployment of large limits and are more exposed to loss than ever before due to social inflation and nuclear verdicts. Bowhead's casualty portfolio benefits from today's positive rate environment, lower required limit to participate on towers, and the ability to exercise disciplined risk selection. We know that outsized awards and litigation funding are not going away. Social inflation is not a surprise to anyone anymore. Even with improved attachments, risk selection and rate still matter. In terms of our disciplined approach to underwriting, our focus is on deal fundamentals. We believe that walking away from deals that don't make sense is just as important, probably more important, than any piece of new or renewal business. Some might say knowing when to walk away is the toughest but most valuable underwriting skill there is. From a market perspective, in excess, limit discipline largely remains. Many excess towers continue to see limit compression from incumbents. This creates new opportunities for underwriters like Bowhead. However, one moderating influence on rate is the movement of admitted markets into the ENS space, as was typical in past insurance cycles. Also, non-risk bearing MGAs and broker sidecars are bringing more capacity into the US casualty market. We agree with certain industry leaders when they say there is a fundamental misalignment of interests in some non-risk bearing underwriting facilities. Overall, We remain confident in our ability to grow profitably. We think the current market is competitive, but there is relatively healthy balance of rate and limit management. Our brand and casualty continues to grow and strengthen. Submissions are growing faster than we can quote, and investments in technology, our digital platform, and talent will allow us to capture more opportunities that fit our appetite. With that, I'll pass the call over to Brad to discuss our financial results.

Thanks, Derek. Bowhead generated adjusted net income of $15.5 million, or 47 cents per diluted share, and adjusted return on average equity of 14.1% in the fourth quarter of 2025. For the full year, Bowhead's adjusted net income increased 30.2% to $55.6 million, or $1.65 per diluted share. An adjusted return on average equity was 13.6%. Our strong results were driven by top and bottom line growth. Gross written premiums increased 21% to $224.1 million for the quarter, and 24% for the full year to $862.8 million. Our growth story was consistent throughout the year we achieved premium growth in each of our divisions with casually continuing to be the largest driver in bailing generating $21.4 million for the year. Due to the timing of our annual reserve review in Q4 each year we consider our full year loss ratio, a more meaningful metric. For the full year, our 2025 loss ratio of 66.7% increased 2.3 points compared to 64.4% in 2024. The current accident year loss ratio increased 1.8 points due in part to higher expected loss ratios and trends after the annual reserve review, as well as mixed changes in the portfolio. The prior accident year loss ratio was unchanged as a result of the annual reserve review. but increased 0.5 points due to audit premiums recorded in 2025 that related to prior accident years. As a reminder from previous earnings calls, the audit premium related reserves in the prior accident years is not based on actual losses settling for more than reserved and did not represent an increase in estimated reserves on unresolved claims. We're simply putting lost reserves into the appropriate accident year regardless of when the premiums are billed and earned. And remember, since we've only been in operations for five years and write long tail lines, our actual loss experience is limited. Because of this, our annual reserve review is primarily based on inputs from industry data. Our initial expected loss ratios are derived from a combination of internal pricing data and external benchmarks, while development patterns are mostly based on external benchmark patterns. We attempt to align all industry benchmarks to the nuances of our portfolio, including not writing risks that are in the business of hauling people or things for others and our lack of large national account exposures and casualty. Additionally, the development patterns we use attempt to take into account our excess position in particular lines, which generally results in later development patterns than primary positions. The most recent annual reserve review in Q4 resulted in various adjustments that were smaller compared to our adjustments in Q4 2024, but most importantly, we had no prior accident year development in our aggregate net losses for 2025 as a result of this review. As you'll see in our 10-K, we reallocated prior accident year reserves by division to align more closely with the actuarially derived projected loss ratios and development patterns. These reallocations were primarily in professional liability, where we reduced the 21 accident year while increasing the newer accident years, and in healthcare, where we reduced the 23 accident year and increased the 22 and 24 accident years. These were offset by a decrease in casualty for the 22 accident year to align with updated projected loss ratios, all resulting in no prior development on an aggregate net basis. More specifically, in professional, The 21 accident years performing well, resulting in a favorable $3.5 million reduction in IBNR. However, the limited experience in subsequent years coupled with declining rates warrants caution. The 22 accident year in particular, where our early experience is deviating from the industry development patterns, was increased by $2.8 million at year end. Similarly in healthcare, the 23 accident years performing well, But in the 22 year, our early experience is also deviating from the industry development patterns. This warranted a $2.2 million increase in the 22 accident year at year end, along with a $3.3 million increase in the 24 accident year out of an abundance of caution. These adjustments to the industry development patterns are another example of conservatism in our reserving. We're reserving as if the industry patterns are correct for now and therefore reallocating reserves in select areas. Lastly, we increased some of the 25-accident year initial expected loss picks to align with actuarial estimates. In alignment with our conservative approach to reserving, we are carrying loss ratios in the 25-accident year above the industry estimates on a majority of our product groups. Overall, our actual experience of paid claims and reserves continues to be better than we actuarially expected, and at the end of the year, IB&R's percentage of total reserves was 90%. Turning to our expense ratio, we consider our full year ratio a more meaningful metric to monitor the trending of our expense ratio due to the inherent volatility quarter to quarter. For the year, our 2025 expense ratio of 29.8% decreased 1.6 points compared to 31.4% in 2024. The reduction was driven by a 2.3 point decrease in our operating expense ratio, which is partially offset by a 1.1 point increase in our net acquisition ratio. The decrease in our operating expense ratio is due to the continued scaling of our business, scaling that is accelerated by the realization of various technology initiatives to improve efficiencies. The increase in our net acquisition ratio was driven by the increase in broker commissions due to mixed changes in our portfolio and, to a lesser extent, the increase in the seating fee we pay to American Family. Overall, the effect of our loss ratio and expense ratio contributed to a combined ratio of 96.5% for the year. As a reminder, we don't write property and we don't write natural catastrophe exposed risks. Turning to our investment portfolio, pre-tax net investment income for the quarter increased approximately 36% to $16.6 million and 44% for the year to $57.8 million. The increase was primarily due to larger investment portfolio resulting from increased free cash flow. At the end of the year, Our investment portfolio had a book yield of 4.6% and a new money rate of 4.5%. The average credit quality of our investment portfolio remained at AA, and our duration increased from 2.9 years in Q3 to 3 years at the year end. Our effective tax rate for the year was 20.1%. As a note, our effective tax rate may vary due to items such as state taxes and stock-based compensation. Total equity was $449 million, giving us a diluted book value per share of $13.45 for the year, an increase of 22% from year end 2024. Turning to our expectations for 2026, we continue to expect a GWP growth of around 20% for the year. As Steven mentioned, the growth should come from all divisions, but led by continued momentum in our casualties division and growth driven by our digital underwriting capabilities. From a seeded perspective, although our main quota share and XOL treaties renew in May later this year, we've renewed our cyber quota share treaty effective January 1st of this year at 65%, up from 60% in 2025, and increased our seeding commissions. As a note, at each renewal, we consider various factors when determining our reinsurance coverage. While we may adjust our reinsurance program, including our retention to support capital needs, expect our reinsurers to maintain a financial strength rating of A or better. Furthermore, we expect our 2026 loss ratio to be in the mid to high 60s due to product mix and our reliance on industry loss trends. Additionally, we expect our expense ratio to be below 30% for the full year due to the continued scaling of our business. Scaling that is accelerated by the realization of various technology initiatives to improve efficiencies. We expect our expense ratio in the first half of the year to be slightly higher than the second half due to payroll taxes. Therefore, we believe our combined ratio will be in the mid to high 90s for the full year and return on equity to be in the mid teens. Turning to our investment portfolio, we expect to extend our duration slightly from three to four years. This change is not because we're predicting interest rates to decrease, but to closer match the duration of our investments to the duration of our liabilities. And lastly, from a capital perspective, In November, we issued $150 million of 7.75% senior unsecured notes that are scheduled to mature on December 1, 2030. We expect the proceeds to be sufficient for our year-end 2026 regulatory capital requirements, but we'll continue to assess throughout the year. With that, we'll turn the call over for questions.

Thank you. If you would like to ask a question, we ask that you please use the raise hand function at the bottom of your Zoom screen. Once called upon, please unmute your audio to ask your question. As a reminder, we are allowing analysts one question and a relevant follow-up. We'll pause for a moment to allow questioners to enter the queue. Our first question will come from Meyer Shields with KBW. You may now unmute and ask your question.

Great, thanks so much. Brad, I appreciate all the detail on the prior year reserve development. Can you walk us through what that implies for price adequacy for 2026 for professional and financial lines? I'm sorry, for professional health care?

Hey, Mayor. Thanks for the question. Yeah, we detailed quite a bit on our prior accident year development, changes around in our ID&R in particular. We think we're priced well. We think pricing is coming in above trend. But we do have a couple of pockets that was just normal changes. I don't want to read too much into it. They were actually pretty small changes. So I don't think there's really a pricing impact from it. It's more just, you know, thinking a conservative approach to the reserving and adjusting where it was warranted, nipping and tucking around the edges, if you will.

Okay, now that's helpful. And I guess a question on Baleen. Right now, obviously, it's a very, very small percentage, but as it grows, should we think of it as having the same loss ratio characteristics as casualty? Is it going to be more evenly distributed? That's the wrong way of phrasing it, but... When you look at the different segments, you've got different loss ratio profiles there, and I'm wondering how we should think of a mature baleen in that context.

I think that the baleen loss ratio will be superior to the general large casualty business. I'm not as certain as when we get into the express casualty business, whether that will probably mirror more of what the larger casualty businesses, but the, but the bailing business based upon the restricted nature of the coverage, we think that that'll have a superior loss ratio.

Okay. Fantastic. Thank you so much.

Your next question will come from Roland mayor at RBC capital markets.

Hi, good morning. I wanted to quickly ask on how you translate industry data into the loss ratio picks. I assume you're trying to be better than the industry and your business is much more niche, but how do you kind of get granular on that data and use it in your business?

Yeah, hey, Roland, this is Brad. Thanks for the question. We've been doing this for a couple years now. Obviously, we don't have enough data on our own to set our picks and development patterns, but we do have a third party actuary who has very detailed proprietary information that they give us. So this is not Schedule P industry data that we're using. This is something that we can slice and dice, as I mentioned, We don't really have a big Fortune 1000 exposure in casualty, for example. That's given everybody a lot of heartburn. So we're able to tailor these industry benchmarks to our portfolio to an extent. There's only so much you can do, obviously. But we think that the proprietary information that we now have helps us. And looking backwards, it has been pretty accurate with foretelling what is happening in the casualty market and the other markets that we participate in. The development patterns are probably the one that, you know, we're starting to see our own data, but I don't know if we can say we have a trend in our data for that. So we are definitely using the industry development patterns. And, you know, I think that's adding a little bit more conservatism into our reserves as well.

Does that help? Yeah, that's, that's super helpful. And then I wanted to talk about the expense ratio target. You're now sub 30. I get there's going to be a step up in acquisition costs from the deal in May and maybe some first half, uh, payroll taxes, but is there a place you're thinking about long-term where you can get the expense ratio down to?

Yeah, I think, um, we have headwinds with our seating fee going to American family, as you, as you point out, but, um, got a lot of tailwinds in the technology initiatives that we've put in place. We saw halfway through last year, we're starting to see the benefits of those a lot faster than we had thought, surprisingly so. So we're still, you know, going to squeeze as much as we can out of this expense ratio. But it is sort of a, you know, last year, low 30s, we were happy being in the low 30s. But this is sort of a new paradigm now with some of the tools out there. So Hard to say where we'll come in, but I think we're comfortable low 30s and we'll do our best to get it even lower than that. All right, perfect, thank you.

Your next question will come from Bob Huang with Morgan Stanley.

Hi, good morning. So my first question revolves around casualty. I wanna just to follow up with something that you talked about a little earlier. I think previously, right, you talked about the undisciplined nature of some of the underwriters, but also the risk of like these eye-watering verdicts from social inflation. As we go into 2026, like, is there any sign that pricing environment and excess casualty maybe is beginning to plateau? Is the market significantly offering substantial growth in 2026 and beyond, just given where we are in the underwriting cycle for the casualty side?

Hey, Bob, this is Derek. You know, I like directionally the limit discipline that we're seeing in the market. I think that's holding pretty well. I would say that there's a lumpy moderation going on. You're seeing some deals in particular that are still dealing with adverse development from prior. And then on other deals, you're seeing, you know, five years of compounded double digit rates. and great loss experience. So you're going to see a little bit of a mix of response from the market for those two different types of risks that are coming in. For the most part though, you know, as Brad said, I think directionally we're seeing a rate exceed loss trend.

Got it. Okay, no, that's very helpful. Thank you. My second question is more of AI and automation. So when I look at Baleen on the automated underwriting side, is there a reason to believe that at some point in time, the technology on that side is advanced enough that you can essentially disintermediate brokers, as in you're going directly to customers for that line of business, or maybe even if that line of business gets bigger, like higher limits, can you skip the brokers and going directly to customers?

In the type of business we do, I don't see that happening anytime soon. I mean, carriers for as long as I've been in the business have talked about, you know, could brokers been disintermediated? At the end of the day, the type of specialty insurance we do is not homogenous. It's not like a family automobile policy or a homeowner's policy. There's a lot of complexity to it that I think needs a lot of explaining. And I think the broker brings a lot to the table. And even further than that, the wholesalers play a large role because many of the retailers who are good producers of the business are not experts in the nuances, the ins and outs of some of the specialty insurance. So we don't see that going away anytime soon, number one. Number two, we think the biggest advantage at this time is the speed at being able to get to the business. I think we've mentioned before that in the casualty space, we don't even have the ability to get to 90% of our submissions that come in the door. Unless it's a premium that's maybe $50,000 or above, we don't have the resources to handle it. In the next several months, we're going to be able to get our system online and express where we'll start to be able to handle that business. So it's a matter of being a great underwriter assist in doing the business to help us grow profitably. But the idea of disintermediating is not on our radar.

Okay, really appreciate it. Thank you.

Your next question will come from Pablo Singson with JP Morgan.

Hi, good morning. So first question for Brad, how much did mix contribute to the 1.8 actual loss ratio up to 25? I think, you know, I think about 26, the rebase loss picture to flow through at the same level. So, you know, if we use 66.7% at 25 as a base, how we sort of frame the impact of any mixed impacts in 26.

Hey, Pablo, thanks for the question. I don't really have an answer for that yet. Um, you're right. We will use our 25 loss picks to sort of a starting point for 2026. So that doesn't mean it's, it's set in stone at that level. Um, you know, we'll review these every quarter and, um, you know, if, if, uh, we need to make changes, we will based on rate or anything else we're seeing or the industry changing as well. Um, I think there is a, we're probably reaching like the upper limit of how much mix plays into it as you see the casualty portfolio is such a bigger portion of the overall premium. But even with that, within casualty, there's mix. So the primary casualty has a different loss pick from excess, for example. So there's mix within mix, if you will. And we just kind of have to see how that plays out. I wish I could give you a more, precise number for next year, but that's the best I have.

Okay, thanks. And take a step back, right? And I appreciate, Brad, you provided a lot of detail in the combined ratio, but I guess as I think about it, the overall number, it seems to me that all else equal, maybe the loss ratio should go up a bit, right? Maybe for mix acquisition expense will probably go up. And the question is, do you expect to fully offset those with a lower expense ratio or will offset the only partial? And, you know, I don't like splitting hairs, but I guess just given where combined ratio is, even a 50-bit movement can be meaningful. So any perspective you can provide there. Thanks.

Sure. I guess, and Stephen, feel free to jump in, but I think the way that we approach this is we will try to get as low of an expense ratio as we can, regardless of where the loss ratio is going. And we will let the loss ratio do what it does based on how we feel comfortable with our reserves, regardless of what the expense ratio is doing. So Hopefully those two come together and there will be some offset if the loss ratio does trend up. We do have, you know, the benefit of older accident years that have lower loss picks. As those roll off, each year you will see that, you know, impact the loss ratio. So I think that's why we're saying our target is the mid to high 60s on the loss ratio. But I wouldn't read too much into that being a huge increase, but yeah. That's probably where I would stand on that.

Well said. Okay. Thank you.

Your next question will come from Cave Montazeri with Deutsche Bank.

Morning. First question is on bailing. Looks like growth is picking up nicely after what was arguably a slow and unexpected first half of the year. Because my question is what's been working so well in the second half of 2025 and how should we think about growth in 2026 for bailing specifically?

well part of it has to do with acceptance that uh there are uh certain entrenched markets and with relatively small premiums of say five thousand dollars there's not a ready acceptance to to market them so there's a certain amount of of hanging around the net, if you will, and continuing getting our message out to brokers of what we're offering, how our policy form compares, how our commission level compares, our service level. all those things and ultimately getting the message through till people start to try us and it becomes you know more and more accepted and now as it starts to build we've started to put more infrastructure behind it in terms of people more people going out and speaking to brokers about the business and then success breeds success they see that What we've done has, it's been worth the effort to try us and they're trying us more. And with adding more marketing people, we've been able to add more distribution points and that's still building on itself. But also even beyond Baleen, and we tried to make this clear earlier, but even beyond Baleen, building on that technology is enabling us to do that smaller business, not the restricted type business of Baleen, but the smaller business that we call Express, which is going to be another real plus, I think, in 26.

Does that help? Second question. Yeah, thank you. My second question is for Brad. On the investment portfolio, it's good to hear that you can increase the duration from three to four years. With your new money yield being below the book yield, would you also consider maybe going up the risk curve? You have a very defensive portfolio right now.

Yeah, thanks for the question, Katie. The answer is no on that one. When we discuss moving our duration up. We explicitly kind of agreed that we're not going to change the risk profile of the portfolio. We'd like the conservative position on it.

Clear. Thank you.

Your last question will come from Cameron Bianchi with Piper Sandler.

Hi, great. This is Cam on for Paul Newsome. Just one question for me. On the lower expense ratio guide for 2026, how much of that improvement would we say is attributable to scale versus mix?

Yeah, good question. I think our previous guidance of low 30s, that was scale. I think the new guidance of being below 30, that's the impact of the technology and the It's not just technology in the digital platform as well. We're deploying technology on the craft business as well. That's helping with efficiencies. Our claims team is getting more efficient. So we're really seeing that across both. So I'd say the difference between the low 30s and where we actually end up would be that the impact of the non-scaling of the business, if you will.

Great, thanks. That's all for me.

That concludes the question and answer portion of today's call. I will now hand the call back to Stephen Sills, CEO, for closing remarks.

Thank you. Bo had delivered another strong quarter to end a great year. Before we go, I wanted to say thank you again to our colleagues and brokers for making 2025 such a successful year. Thank you, and we look forward to speaking to you along the way.

Thank you for joining today's session. The call has now concluded.